Peak load pricing under periodic and stochastic supply

The paper extends to the supply side previous work on peak load pricing embodying periodic and stochastic variations in demand. In a first step it introduces into the problem of periodic demand the additional problem of periodic capacity availability. Then it considers the general case where stochastic fluctuations enter both the demand and capacity availability sides. Welfare-maximising results suggest that off-peak consumers should be charged with capacity costs according to the loss-of-load probability in any period. This probability depends on periodic and random fluctuations in capacity availability. The optimal level of capacity is also affected by such fluctuations.